1/17/2024: Schwab Revenue Declined 19% in Q4
Schwab reported Q4 earnings this morning. Revenue was $4.46B vs. $4.48B expected. Adjusted EPS was $0.68 vs. $0.64 expected. Net interest income fell 29.7% YoY and bank deposits fell 25% YoY. Overall, it was an underwhelming quarter and a huge contrast from JP Morgan’s quarterly results. JPM 0.00%↑ managed to increase its net revenue by 10% in Q4 while Schwab’s revenue declined 19% during the same period. In addition, Schwab still has $160B (or 36% of its total assets) of held-to-maturity security on its balance sheet that’s earning a whopping 1.74% yield while borrowing $31B from FHLB at 5.28%. I believe Schwab will be able to weather this downtown with its diversified revenue sources. But these numbers still look bad.
Net new assets for Schwab also fell 48% from $150.7B to $66.3B in Q4. I wonder if Robinhood’s 1% transfer bonus has anything to do with this. But I personally transferred a substantial amount of assets from Schwab to Robinhood. I wanted to spread my assets across different brokerages just in case and the 1% free money motivated me to take action. Robinhood is pretty good so far. The biggest problem with Robinhood is that investors cannot choose lots when selling a security. It only offers FIFO (first-in-first-out) but since I don’t really trade, it doesn’t matter to me. On Robinhood, I also earn 5+% on my cash holdings vs. close to nothing on Schwab. Schwab really needs to up its game to fend off newcomers like Robinhood.
Schwab had 11% outflow to debt instruments/treasuries.
Absolutely agree it seems they need to offer higher rates to retain deposits. Unfortunately they have a ton of HTM 10 year + that would result in them loosing money on deposits if they increased rates.
They issued around 6B in senior notes to help offset decline but it will only do so much.
They are selling off HTM assets at around 3B per quarter but they have 159B left.
I didn't think schwab was an insolvency risk when SVB happened and actually went long for a brief period. But watching them now they could be a slow moving train wreck. If AUM keep falling faster than they can deleverge they are in for a serious problem.
Fidelity has been amazing for me for close to 20 years. Great interest available across a wide offering of MM accounts too